This course provides an introduction to the U.S. federal income taxation of pass-through business entities, including Subchapter S corporations, partnerships, and limited liability companies. The course focuses on the relevant provisions of Subchapters S and K of the Internal Revenue Code, as well as related Treasury Regulations and judicial opinions, governing the formation, operation, and termination of pass-through entities. Practical in-class study problems facilitate self-discovery of technical tax knowledge along with the development of a variety of professional skills and attitudes.

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Module 1 Partnership Formation

In this module, you will be introduced to partnerships. We will delve into the formation of partnerships along with the characteristics that differentiate this form of business from other U.S. entities. This module focuses on the eligibility of legal ‘persons’ to form a partnership and the nonrecognition provisions and holding periods that apply to the contribution of such capital. Exceptions to the nonrecognition rules will be highlighted along with additional elections and treatments available to partnership formation.

Enseigné par

Michael P Donohoe, PhD, CPA

Associate Professor of Accountancy and PwC Faculty Fellow

Transcription

A few other important issues arise when property has contributed to a partnership. First when a partner contributes depreciable property, the partnership typically follows the depreciation schedule used by the partner. This approach ties back to the idea that the partner has simply changed the legal form of their investment. Also the partnership cannot claim a Section 179 deduction on the contributed property. Second, if a partner contributes Section 197 intangible assets, which includes items such as goodwill, patents and trademarks, the partnership will follow the amortization schedule used by the partner. Other intangibles are amortized over their useful life. Finally, to prevent partners from converting ordinary income into capital gain income, the gain or loss of a partnership is treated as ordinary income if the partnership disposes of either one, contributed unrealized receivables for which the contributing partner had not recognized as income or two, property that was inventory and the contributing partners hands if the partnership disposes of the property within five years of the contribution. A similar provision prevents some capital losses from being converted into ordinary losses. In particular, if contributed property is disposed of at a loss and the property had a built in capital loss upon contribution, the loss is treated as a capital loss if the partnership disposes of the property within five years of the contribution. The capital loss is limited to the amount of the built in loss upon contribution.